Thursday, May 03, 2012

(FT) Latin American nationalisation dominoes

COMMENT - Nationalisation is on the march throughout South America.

Latin American nationalisation dominoes
May 2, 2012 12:16 pm
by John Paul Rathbone

There seems to be a domino effect in Latin America. Two weeks after President Cristina Fernández nationalised Spanish oil company Repsol’s stake in Argentina’s YPF, President Evo Morales has nationalised Spanish electricity grid operator Red Eléctrica’s business in neighbouring Bolivia.

In both cases, troops were sent in to underline the glorious nationalism of the occasion. But does this mark a new wave of populism and nationalisations in the region? Almost certainly not.

Since he came to power six years ago, Mr Morales has turned May Day nationalisations into a ritual. In 2006, he nationalised the Bolivian operations of Brazil’s Petrobras. In 2010, he nationalised four electricity companies. The move against Red Eléctrica is a mopping-up operation of “strategic assets” he wants to see returned to the state.

It is more of a psychological than an economic blow to the Spanish: the Bolivian business represents just 1.5% of Red Eléctrica’s annual sales of €1.6bn. Bolivia is already discussing compensation with Madrid, one of the Andean country’s biggest aid donors. Ms Fernández’s move, by contrast, has taken Argentina onto a whole new tack – and just as the populist model is imploding in socialist Venezuela, the ideological source whence it most recently came.

Although Ms Fernández might see yesterday’s Bolivian nationalisation as vindication for her own move on YPF, most of the region has moved on from such brazen economic populism. Centrist governments in Mexico, Colombia, Chile, Panama want to encourage foreign investment. So too do Peru and Brazil. These are the countries that are leading the continent forward. Their governments’ confidence in their countries’ futures is striking – especially when compared to inward-looking Argentina, Venezuela or Bolivia. It is no coincidence that in these three countries’, the ruling parties are also soon seeking re-election, even as their leaders’ popularity is flagging.

Nationalisation in these cases is more to do with regime maintenance and power politics rather than energy or economic policy. Indeed, in all three countries the subsequent performance of industries that have been nationalised has been middling, at best; more often it has been very poor.

Nonetheless, this poor economic policymaking has, to date, often proved to be good politics. Why? In part because its costs have been masked over the past 10 years by the abundance of commodity wealth that all of South America has enjoyed. Thanks to China’s rise, and its hunger for commodities, money has often seemed to fall magically from the heavens. Some governments spent or saved the bounty wisely; others squandered it. Now, in a more uncertain global economic environment, there may well be a reckoning. The prudent will be rewarded; the spendthrifts will find it harder going. Rather than representing a new wave of populism in Latin America, these latest nationalisations may in time prove to be a last stand.

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